Equity Linked Debentures and Commodity Linked Debentures
Equity Linked Debentures (ELDs)
Equity Linked Debentures (ELDs) function as variable-rate debt instruments, with their interest linked to the performance of underlying equity assets like the S&P Sensex, individual stocks, the Nifty 50, or a tailored basket of individual stocks.
The bond issuer allocates a predetermined portion of the collected principal to fixed-income securities such as bonds, ensuring principal protection. Simultaneously, the remaining balance is utilized for exposure to equity returns through options.
Equity Linked Debentures are typically structured to offer 100% capital protection, coupled with the opportunity for investors to participate in equity markets. It's important to note, however, that while they provide capital protection, Equity Linked Debentures (ELDs) do not eliminate credit risk (the risk of issuer default). As a result, these instruments undergo credit rating assessments by credit rating agencies to gauge their creditworthiness.
Commodity Linked Debentures (CLDs)
Similar to ELDs, Commodity linked Debentures are variable-rate debt instruments, and their interest is tied to the performance of the underlying commodity asset. While the returns can be associated with any commodity, the majority of these instruments worldwide are linked to precious metals, specifically gold and silver. Like ELDs, Commodity linked Debentures-CLDs offer 100% capital protection, providing investors with the opportunity to participate in commodity markets.
Market Linked Debentures (MLDs)
Market Linked Debentures, or MLDS, can be described as debt securities wherein the investor's return on investment is entirely contingent on the performance of the market index. These debentures are essentially fixed-income structured products that do not provide periodic coupons but only pay out at the time of maturity.
Features of market linked debentures
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Market linked debentures have tenures of 13 to 60 months, attracting sophisticated investors with a high investment value.
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Capital protection ensures the return of the principal amount on Market linked debentures even in adverse market conditions.
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Types of market linked debentures are - principal-protected MLDs and non-principal-protected MLDs.
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Principal Protected MLD blends fixed-income and market linked returns, assuring the return of the principal at maturity. They appeal to risk-averse investors willing to accept comparatively lower interest rates. Non-Principal Protected MLDs do not guarantee the return of the invested principal during adverse market conditions, as per the issuer's conditions.
Frequently Asked Questions
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What are equity linked debentures?
Equity-linked debentures are debt instruments incorporating an option to acquire an equity stake in the issuer, its parent, or another company at a predetermined fixed price. This option can be exercised through the conversion of existing debt or by utilizing the right to purchase.
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What are the major types of market linked Debentures?
market linked Debentures are primarily categorized into two types – principal-protected and non-principal-protected.
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What is the minimum investment in market linked Debentures in india?
The minimum ticket size for investment in market linked Debentures is Rs. 25 lakh or more.
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What characterizes an equity linked bonds?
An equity linked bonds combines features of both debt and equity. These debt instruments include an option to acquire an equity stake in the issuer, its parent, or another company at a predetermined fixed price, which can be exercised through the conversion of existing debt or by utilizing the right to purchase.
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What is a Commodity Linked Bonds?
A Commodity Linked Bonds is a type of debt security where the coupon payments and/or principal are directly linked to the price of the underlying commodity.
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How can I buy market linked debentures?
Choose the "Enrich Money" platform for a user-friendly experience, expert guidance, and secure transactions, making investing in market linked debentures seamless and informed.
